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Unapproved Debt

For decades small businesses have been struggling to get hold of the money they are owed and the problem is not getting any better. Some 59% of small business owners experienced big business customers increasing their payment terms during the pandemic.

Too much of a small firm's working capital is tied up in big firm's late payments. This often forces small firms to seek alternative and expensive sources of finance. Not only does this inhibit their  ability to grow at the pace they could and should, but in the current financial climate could have devastating effects on a companies future.

Xero have been helping to tackle the late payment problem with innovative technology that makes it easier to pay on time, but wanted to do more.  They convened a "late payments task force" consisting of eminent experts from the worlds of business, academia, psychology and media. The group produced a series of recommendations to help end the late payments crisis.

One of the recommendations was to rename late payment "unapproved debt" thereby calling it what it is and drawing attention to bad practice. The term "late payment" legitimises poor practice and the task force urged the government to run a national promotional campaign to establish "unapproved debt" as the common term. Regardless of the terms that large businesses try to impose in individual contracts, 30 days should be deemed the fair time for payment and anything beyond that should be classed as unapproved debt.

The task force also recommended that large firms should be required to set out in their annual report how much unapproved debt they are carrying (based on the working assumption that payments should be made in 30 days, regardless of agreed terms which can run to hundreds of days) This should be included in the annual report in a way that is clear and obvious, not buried or hidden away. 

The full report can be read here Report

Changing the way businesses perceive late payments will not solve all the problems facing small businesses, but anything that can help them receive payment sooner might provide the cash injection they need to survive and thrive.